Technical versus fundamental analysis

Ask yourself on what basis you'll make your trading
decisions -- fundamental analysis or technical analysis?

Fundamentals are the broad grouping of news and information
that reflects the macroeconomic and political fortunes of the
countries whose currencies are traded. Most of the time, when
you hear someone talking about the fundamentals of a cur-
rency, he's referring to the economic fundamentals. Economic
fundamentals are based on:

Economic data reports
Interest rate levels
Monetary policy
International trade flows
International investment flows

The term technicals refers to technical analysis, a form of
market analysis most commonly involving chart analysis,
trend-line analysis, and mathematical studies of price behav-
ior, such as momentum or moving averages, to mention just a
couple.

We don't know of too many currency traders who don't follow
some form of technical analysis in their trading. Even the
stereotypical seat-of-the-pants, trade-your-gut traders are
likely to at least be aware of technical price levels identified
by others. If you've been an active trader in other financial
markets, chances are, you've engaged in some technical
analysis or at least heard of it.

Followers of each discipline have always debated which
approach works better. Rather than take sides, we suggest fol-
lowing an approach that blends the two disciplines. In our
experience, macroeconomic factors such as interest rates,
relative growth rates, and market sentiment determine the
big-picture direction of currency rates. But currencies rarely
move in a straight line, which means there are plenty of short-
term price fluctuations to take advantage of -- and some of
them can be substantial.

Choosing Your Trading Style

When you determine how much risk capital you have avail-
able for trading, you'll have a better idea of what size account
you can trade and what position size you can handle. Most
online trading platforms typically offer generous leverage
ratios that allow you to control a larger position with less
required margin. But just because they offer high leverage
doesn't mean you have to fully utilize it.


Making time for market analysis
The full version of Currency Trading For Dummies talks about
the amount of data and news that flows through the forex
market on a daily basis -- and it can be truly overwhelming.
So how can an individual trader possibly keep up with all the
data and news?

The key is to develop an efficient daily routine of market
analysis. Thanks to the Internet and online currency broker-
ages, independent traders can access a variety of information.

Your daily regimen of market analysis should focus on:

Overnight forex market developments: Who said what,
which data came out, and how the currency pairs reacted.
Daily updates of other major market movements over
the prior 24 hours and the stories behind them: If oil
prices or U.S. Treasury yields rose or fell substantially,
find out why.
Data releases and market events (for example, the
retail sales report, Fed speeches, central bank rate
announcements) expected for that day: Ideally, you'll
monitor data and event calendars one week in advance,
so you can be anticipating the outcomes along with the
rest of the market.
Multiple-time-frame technical analysis of major cur-
rency pairs: There is nothing like the visual image of
price action to fill in the blanks of how data and news
affected individual currency pairs.
Current events and geopolitical themes: Stay abreast on
issues of major elections, political scandals, military con-
flicts, and policy initiatives in the major currency nations.